July 16, 2012
To Our VSECU Members:
We believe that VSECU is being unfairly targeted in a battle with banks.
This battle is over a disagreement about who can and cannot use the word “banking” to describe the services offered by a regulated financial institution. Our state regulator, which oversees both banks and credit unions in Vermont, believes the word is reserved for banks only and intends to forbid VSECU from using it.
On June 18, 2012, the Vermont Department of Financial Regulation (DFR) served VSECU with a Notice of Intent to Issue a Cease & Desist Order that would prohibit VSECU from using the words (to) “bank” and “banking” in our marketing, communications and advertising.
Over the past several months we have provided evidence to the DFR that clearly shows this action is misguided and will unfairly inhibit the growth of cooperative non-profit banking for Vermonters. Unfortunately, we have not been successful in changing DFR’s position and it is pressing forward apparently because of continuing complaints from bankers. VSECU will fight this Notice and vigorously defend our right to freedom of speech and to advance credit union banking for all Vermonters.
We won’t stop telling our story. You can bank at a bank, or you can bank at a credit union. You can do your banking at a bank, or you can do your banking at a credit union. Today, you can even do your banking at Walmart! This spirit of banking competition and choice for consumers is healthy and necessary.
VSECU is a credit union. We are proud of our heritage as a banking cooperative and of the positive impact we make in helping improve the quality of life for our members. We’re not sure where this issue will go from here. We’re prepared to follow this through to the end, regardless of how long it takes to ensure that we can continue to tell our story using a vocabulary that is simple, honest and commonly understood.
Thank you for choosing VSECU as your banking alternative to traditional banks.
Steven D. Post, CEO
On behalf of the VSECU Board of Directors
DFR Notice of Intent to Issue Cease & Desist Order: Frequently Asked Questions:
What is the DFR?
The Department of Financial Regulation (DFR) was formerly known as the Vermont Department of Banking, Insurance, Securities and Health Care Administration (BISHCA). The DFR is responsible for regulating state-chartered financial institutions in Vermont.
Why has the DFR started this proceeding against VSECU?
The DFR states we violate Vermont statute 8 V.S.A. §14103 when we use words such as “banking” , “to bank” and "not-for-profit banking cooperative " in our marketing because, it says, that those words mislead the public into thinking VSECU is a bank.
Does VSECU believe it is in violation of this statute?
VSECU does not believe its use of the word “banking”, or any of its derivatives, is a violation of the letter or the spirit of the statute. We believe VSECU is a state-chartered credit union empowered to provide banking services to Vermonters and therefore has the right to truthfully and honestly describe itself. We believe the DFR’s interpretation of the statute is wrong and has no public benefit. DFR’s interpretation also violates VSECU’s constitutional rights. We believe this enforcement action, if successful, will have the effect of protecting the for-profit banking industry from legitimate non-profit competition.
When were you made aware of this issue?
The DFR expressed concern with some of our advertising in 2007 when we first developed a marketing campaign that differentiated VSECU from banks with the “Why bank when you can VSECU” campaign. We provided copies of our marketing, advertising and communications to the DFR containing the words “bank” and “banking,”… sometimes in advance of publicly releasing those advertisements. Their concern seemed to go away, at least until we started using “banking cooperative” to describe ourselves.
What is VSECU’s position on this?
We believe that we should be able to make truthful and accurate statements in our advertising and marketing material. We believe that we have done so when describing ourselves as a “banking cooperative”, as a “banking alternative” and as a place where a person can do his or her “banking.”
Are you trying to position yourself as a bank?
Absolutely not. We have invested a lot of time and money over the years to showcase the differences between VSECU and a bank.
How are you different from a bank?
Both banks and credit unions exist for important reasons. What makes us different is our structure and our business model – how we operate.
- We are a not-for-profit banking cooperative. We are owned by and operated exclusively for our members.
- Most banks operate as “for-profit” entities and strive to maximize their profits for their investors or shareholders – people who may not even conduct their business at the bank. VSECU does not attempt to maximize profits and only retains enough earnings to meet regulatory requirements and maintain the safety and soundness of the organization. The rest goes back to our member-owners in the form of higher savings rates, lower loan rates and lower fees.
- Each of our members has an equal voice. Our democratic principles give each member a vote in electing the Board of Directors. Bank customers have no say over who sits on the bank board or how the bank should operate its business.
- VSECU directors are volunteers and are not compensated as a Board member. A bank director is usually paid and often paid very well.
Why do you use the word “banking” in your advertising?
We are simply trying to raise awareness and help Vermonters understand that VSECU and other credit unions offer a unique kind of banking experience. Our advertising is designed to highlight how different we are, not how similar we are to banks.
What is the definition of “banking”?
It means engaging in the activity of receiving, lending, exchanging, and safeguarding money and, in some cases, issuing notes and transacting other financial business.
Do you think your message misleads or confuses the public?
Our advertising states that we are a credit union. Our messages bring clarity to who we are, what we offer, and what consumers can expect to do with us.
Do other credit unions use the words “bank” and “banking”?
Yes. The words “banking” and “(to) bank” are generic and commonly understood words by the public that characterize the type of business we are in and the activities of a person when they do business with a credit union or bank.
Even the Wall Street Journal understands that credit union members can do their banking at a credit union. The title of a recent newspaper article in April 2012 educated readers with an article titled, “Advantages of Banking at Credit Unions.”
How is this going to affect other credit unions in Vermont?
This Notice only targets VSECU. The DFR has not taken this action against any other credit union that we are aware of. We can only assume that other state chartered credit unions in Vermont will be affected and subjected to the same prohibition of using the words “bank” and “banking” if the DFR is successful.
Federal credit unions such as North Country, NEFCU, Vermont Federal and Heritage Family are not subject to any Vermont ruling that comes from this enforcement action and therefore can continue using the words “bank” and “banking” without penalty.
What will happen if DFR is successful in preventing use of these terms?
This kind of enforcement by a state regulator would be very unfortunate for Vermonters and set a very bad precedent in Vermont.
It would mean that VSECU and other state chartered credit unions would not be able to simply, fairly and accurately describe who they are and what kind of services they offer such as: mobile banking, banking online, banking solutions, “you can bank at a credit union”, “we’re redefining banking”, “our credit union is a banking alternative,” etc.
It would clearly put VSECU and other state chartered credit unions at a competitive disadvantage since federally chartered credit unions can use these terms freely.
Rather than protecting the Vermont consumer against confusion, it will only create confusion, since not all types of financial institutions will be able to use the same generic vocabulary in public.
It could make it more attractive for state-chartered credit unions to convert to a federal charter and Vermont will lose more and more local oversight of its credit union industry.
Would VSECU consider switching to a federal charter?
That is the last thing we want! VSECU is a Vermont institution, owned and controlled and regulated by Vermonters and we want to remain state-chartered. That said, an adverse ruling on this action would force us to reconsider all of our options.
Is this an issue unique to Vermont?
No. There was a similar though not an identical case in Minnesota that ruled in favor of the credit unions that were using this same type of language however, that case only involved federal credit unions.
Other credit unions around the United States use the words “bank” and “banking” frequently in their advertising and some use the word “cooperative” in their names.
Why do you think VSECU being targeted like this?
We’ve been told that the DFR receives complaints about our advertising, but we never get the name of the complainant. So we are left assuming that those complaints are coming from competitors in the banking industry.